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Title: Asset growth effect, stock illiquidity and short-sale constraints
Author: Liu , Lanlan
ISNI:       0000 0004 6351 3532
Awarding Body: University of Nottingham
Current Institution: University of Nottingham
Date of Award: 2016
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This thesis examines the roles of stock illiquidity and short-sale constraints in explaining the asset growth effect. The puzzling negative relation between growth in firm-level assets and expected stock returns has received increasing attention in the literature. The first empirical chapter explores how variations in stock illiquidity and liquidity risk affect the negative asset growth-return relation. I find that the total asset growth effect appears to subsume other asset growth and investment effects. Moreover, the asset growth effect is concentrated among illiquid stocks. The return spreads between low- and high-growth portfolios declined after controlling for their exposure to liquidity risk. The second chapter examines how high short-sale constraints interact with the asset growth effect, particularly the exploitability of the short- side of the effect. My results indicate that profits from taking short positions in high-growth stocks are limited among highly short-sale constrained stocks. I document an abnormal return asymmetry between the long side and short side of the asset growth effect, which is more pronounced when there is a strong demand to sell short and a limited supply of shares to borrow. In the third chapter, I employ both short-sale constraints and stock illiquidity in explaining the asset growth effect. I find the NASDAQ market has a stronger effect than the NYSE/AMEX markets. The significant negative returns of high-asset growth stocks rely heavily on short-sale constrained stocks. The strong positive returns earned by low- asset growth stocks concentrate on illiquid stocks. After controlling for both short-sale constraints and stock illiquidity, total asset growth rate cannot predict stock returns independently.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available